- 2 - Draft for Public Comment A Beneficiation Strategy for the South Africa’s Minerals Industry - 3 - TABLE OF CONTENTS Page Purpose, Vision and Scope 4 1 Introduction 5 2 Global Perspective 6 3 Beneficiation Value Proposition for South Africa 7 3.1 Comparative Advantage 8 3.2 Competitive Advantage 8 4 Cross-Cutting Constraints to Beneficiation - South Africa 9 5 Strategic Framework 9 5.1 Key Action Plans 11 6 Selected Value Chains 12 6.1 Energy Commodities 13 6.2 Iron and Steel 15 6.3 Pigment and Titanium Metal Production 16 6.4 Autocatalytic Converters and Diesel Particulate 17 6.5 Diamond Cutting and Polishing and Jewellery Fabrication 18 7 Conclusion and Recommendations 20 LIST OF FIGURES FIGURE 1 - IMPLEMENTATION OF THE BENEFICIATION STRATEGY............................................... - 11 - FIGURE 2 - IRON AND STEEL STRATEGIC OUTCOME...................................................................... - 16 - FIGURE 3 – PRECIOUS MINERALS STRATEGIC OUTCOME.............................................................. - 20 - LIST OF TABLES TABLE 1 - CROSS CUTTING ACTIVITIES AND KEY ACTION PLANS ................................................. - 12 - TABLE 2 – SELECTED COMMODITIES AND VALUE CHAINS ............................................................. - 13 - A Beneficiation Strategy for the South Africa’s Minerals Industry - 4 - GLOSSARY AMI - Advanced Metals Initiative APDP - Automotive Production and Development Programme ASGISA - Accelerated and Shared Growth Initiation of South Africa BBBEE - Broad-Based Black Economic Empowerment CBM - Coal Bed Methane CIP - Critical Infrastructure Programme CTL - Coal to Liquid DME - Department of Minerals and Energy DSM - Demand Side Management DST - Department of Science and Technology DTI - Department of Trade and Industry GDP - Gross Domestic Product IDZ - Industrial Development Zones IPP - Import Parity Pricing JIPSA - Joint Initiative on Priority Skills Acquisition KAP - Key Action Plan MPRDA - Minerals and Petroleum Resources Development Act MQA - Mining Qualifications Authority NIPF - National Industrial Policy Framework PBC - Platinum Beneficiation Committee PGM - Platinum Group Metals PVC - Polyvinyl Chloride R&D - Research and Development SDT - State Diamond Trader SETA - Sector Education and Training Authority SIP - Strategy Investment Programme SMME - Small, Medium and Micro Enterprise A Beneficiation Strategy for the South Africa’s Minerals Industry - 5 - PURPOSE The value proposition of the beneficiation strategy presents provision for a framework within which South Africa can implement an orderly development of the country’s mineral value chains in order to leverage benefit from inherent comparative and competitive advantages. Essentially, the strategy is intended to support national programmes such as the National Industrial Policy Framework (NIPF), consistent with the provisions for a sector specific strategy and key action plans for downstream mineral beneficiation as well as the development of the nuclear power capacity, for instance, which is intended to diversify the country’s energy basket and to ensure security of energy supply. The strategy will also advance the objectives of the Accelerated and Shared Growth Initiative of South Africa (ASGI-SA), the Minerals and Petroleum Resources Development Act, the Broad-Based Socio Economic Empowerment Charter, the Precious Metals Act, the Diamond Amendment Act, energy growth plan as well as compliance with the Kyoto protocol. VISION The strategy seeks to facilitate economic diversification, expedite progress towards a knowledge based economy and attain incremental GDP growth in mineral value addition per capita in line with the vision outlined in the NIPF and the Advanced Manufacturing Technology Strategy. SCOPE The scope of the document covers the beneficiation of ten mineral commodities and selects five value chains that would flow from these commodities. Although the value of side-stream beneficiation is recognised, the strategy focuses on the opportunities for downstream beneficiation with respect to the ten identified commodities, and proposes measures that would be investigated to address particular challenges. The beneficiation strategy applies to all mineral commodities of South Africa – the value chains specified herein are indicative of the potential that would be achieved. The successful implementation of this strategy depends on intensive co-ordination across a range of government departments, particularly the Departments of Minerals and Energy, Trade and Industry, Science and Technology, Public Enterprises and Finance as well other stakeholders, including business and labour. A Beneficiation Strategy for the South Africa’s Minerals Industry - 6 - 1. INTRODUCTION The 1beneficiation strategy is aimed at providing a strategic focus for South Africa’s minerals industry in terms of developing mineral value chains and facilitating the expansion of beneficiation initiatives in the country, up to the last stages of the value chain. In terms of Section 26 of the Mineral and Petroleum Resources Act of 2002, as proclaimed in 2004, the Minister of Minerals (1) may initiate or prescribe incentives to promote the beneficiation of minerals in the Republic and (2) If the Minister, acting on advice of the advisory Board and after consultation with the Minister of Trade and Industry, finds that a particular mineral can be beneficiated economically in the Republic, the Minister may promote such beneficiation subject to such terms and conditions as the Minister may determine. The strategy is aligned to broader national objectives, including, albeit not limited to the NIPF, AsgiSA, nuclear build program, MPRDA (Section 2), BBBEE Charter, Precious Metals Act and the Diamond Amendment Act. The strategy is premised on the need to unlock downstream and side-stream values and it provides the initial analysis of opportunities and challenges in downstream beneficiation as well as suggesting instruments that must be investigated and implemented to enhance value addition. Downstream value addition involves a range of activities including large-scale capital-intensive activities such as smelting and refining as well as labour-intensive activities such as craft jewellery and metal fabrication. Side-stream value addition refers to inputs, namely capital goods, consumables and services, into the value chain. The total net beneficiation of minerals is maximised by a combination of downstream and side-stream linkages. The beneficiation strategy for the minerals industry of South Africa draws from a range of legislation and policies which include the Mineral and Petroleum Resources Development Act, 2002 (Act No. 28 of 2002) and the Broad-Based Socio-Economic Empowerment Charter for the Mining Industry (Mining Charter). One of the objectives of the MPRDA is to “promote employment and advance the social and economic welfare of all South Africans”. The Act mandates the Minister of Minerals and Energy to initiate or prescribe incentives to promote beneficiation and to 1 The term mineral “beneficiation” entails the transformation of a mineral (or a combination of minerals) to a higher value product, which can either be consumed locally or exported. The term “beneficiation” is used interchangeably with “value-addition” or “downstream beneficiation”. The beneficiation of minerals includes downstream and side-stream linkages (input sector, such as R&D for new product development). A Beneficiation Strategy for the South Africa’s Minerals Industry - 7 - advance beneficiation activities of particular mineral commodities, where it is economical, and at the advice of the Mining and Minerals Board. The strategy is premised on an initial study of ten mineral commodities, the five value chains of which are presented to demonstrate intrinsic, multi-tier value proposition benefits for South Africa, including creation of new jobs, development of requisite skills, investment in research and development, economic growth, sustainable development and cost-effective support for the broader policies of government. A number of key constraints to effective implementation of the beneficiation strategy are identified and key action plans intended to mitigate such constraints are also presented. Ultimately, a qualitative assessment of the impact of the strategy is also presented. 2. GLOBAL PERSPECTIVE Developing countries are increasingly playing a bigger role in global economic growth, driven mainly by Brazil, Russia, India and China (BRIC). The International Monetary Fund predicts developing countries’ growth, averaging 7%, to lift world economic growth. Robust growth in developing countries confirms assertions that the world has entered a new growth phase that will precipitate a long term high demand for natural resources, goods and services. Individually, the Chinese and Indian economies lead the pack with 2005 economic growth rates of 10.7% and 9.0 % respectively. The per capita consumption of base metals and steel generally tends to rise with income. Countries in their early stages of development use long steel for infrastructure and construction purposes whilst more developed economies use flat steel for manufacturing. Following a period of high steel intensive growth, between US$15000 and US$20000 Growth Domestic Product (GDP) per capita, the USA, South Korea, Japan and Taiwan reached a saturation point in their consumption of steel followed by a tapering thereof. China’s GDP per capita is currently just over US$6000 which is some distance below